A successful business is made up of many functions. Some of these will be at the core of the business activity, for example, manufacturing. Some activities, although non-discretionary, play little or no part in the core business activity; an obvious example is finance and accounting. While these non-core, or back-office, activities may be key to the smooth running of the business, they may not make a direct contribution to the profitability of the business. Nonetheless, they eat into management time: effort that may be better spent on core activities.

So how can you spend less time on administration and more time creating profit? In this article we will take a look at how outsourcing can play a strategic role in your business.

What is business process outsourcing?

Business process outsourcing (BPO) is a way of optimising back-office processes, using external expertise, by outsourcing these processes to a thirdparty service provider.

BPO not only cuts costs, it adds value too

While reducing costs will often be an overriding motive for considering outsourcing, as well as being the most quantifiable, creating value is becoming as important a reason. Used effectively, BPO can improve your value proposition with all stakeholders: customers, employees, suppliers and strategic partners. By taking advantage of global labour arbitrage you can cut the cost of services by employing cheaper overseas labour to manage non-core activities. You can also automate processes without the costly investment you may need to make to do so in-house.

Take one aspect of accounting as an example: accounts payable. As invoices come into the business, someone processes them. This may be a manual process or a partially automated process using some proprietary software.

We estimate this process to cost, depending on the size of the business, between £3 and £5 an invoice. Outsource the accounts payable work and you digitise the whole process, move it offshore, get access to state-of-the-art technology, and cut the cost by between £1 and £2 an invoice. By outsourcing you have made the whole process slicker and reduced your costs.

BPO injects much-needed flexibility

When outsourcing a function, you gain access to expertise that you perhaps wouldn’t consider employing in-house as the cost would be difficult to justify. What’s more, outsourcing means you use only the resource you need, gearing up during busy periods and winding down during quieter periods. This move from fixed overheads to variable overheads offers a flexibility that SMEs find difficult to carry on their own balance sheets.

Outsourcing can also help growing businesses. Companies can sometimes be victims of their own success by struggling to keep up with growth. Recruitment, training and management of the extra resource needed to keep pace with expansion can all present problems and divert attention away from the core business strategy. Outsourcing means you have easy access to the resource you need to cope with growth.

Something that never changes in business is the need to change. As new business standards and methods arrive, the SME can find it more difficult to adapt than larger corporations, especially if deepseated processes need complete re-engineering. Change can cause even more distraction if it involves change to a back-office function, for example, adopting new accounting standards. An outsourcing partner is much better placed to deal with change as it has the necessary expertise and systems in place to cope, leaving you to get on with running your business.

Outsourcing opportunities for the SME

The key areas for the SME to consider for outsourcing will be those that involve high-volume transactions. These will often fall into the finance and accounting area and may include invoice processing, bookkeeping, tax processing, payroll processing and purchasing.

A recent survey by Equaterra showed that achieving overall finance and accounting transformation was either the most or second-most critical issue for 81% of chief financial officers. In the future, more and more companies will look to outsourcing not only to reduce costs but also to transform their business and stay competitive.